The Egyptian pound was devalued massively on Thursday to 13 pounds against the U.S. dollar after the country’s central bank adopted a floating unit policy in an attempt to stabilize the economy, which has been hurt by a shortage of greenbacks.
The Egyptian pound shed a third of its value after the move to unpeg it from the 8.8 per dollar set in March. It has since plummeted more than 50 percent.
In reaction, stocks at the country’s bourse jumped to an all-time high in eight years as investors rushed in to in anticipation of the North African country securing a $12 billion loan from the International Monetary Fund (IMF) to boost its turbulent economy.
Egypt is seeking to boost investor confidence in its battered economy that has never recovered from the Arab Spring that ended in January 2011.
“We have been expecting this for a long time and it is very positive. We expect a lot of interest in Egypt, it’s a massive economy that has been put on hold for year,” Bloomberg quoted Rami Sidani, head of frontier investments at Schroders Plc on phone.
President Abdel Fattah al-Sisi is also leading an austerity plan to cut government expenditure as part of IMF’s conditions to grant the loan.
The decision will also boost its foreign currency reserve, months after a dollar shortage hit the nation. In September, its foreign currency reserves had $19.6 billion, less than half the amount in early 2011, Middle East Eye reported.
The Egypt Central Bank also announced its decision to increase interest rates by 300 basis points to 14.75 percent in an effort to curtail inflation. Inflation is at a high of about 14 percent, the highest it has been in seven years.
The north Africa county was once a continental economic giant, but has been in crisis following the Arab revolution that led to the fall of President Hosni Mubarak.
The current president, Abdel Fattah al-Sisi, had outlined “an ambitious plan to develop agriculture, housing, education and impoverished areas” in his election campaign and promised that Egyptian would see their living standards improve within two years.
But the country has seen economic problems intensify over the last few years amid a collapsing tourism sector and lower oil prices, Business Insider reported.
Tourist arrivals to Egypt plunged dramatically after the Arab Spring revolution, and again after last year’s downing of a Russian aircraft on Egypt’s Sinai Peninsula shortly after take off from Sharm el-Sheikh. This has been problematic for Egypt given that its tourism sector is a major source of hard currency.
Source: AFK Insider